General solicitation: Overview, definition, and example
What is general solicitation?
General solicitation refers to the act of advertising or promoting an investment opportunity to the public, typically through means such as public announcements, social media, advertising, or mass mailings. This type of solicitation is typically used to attract a broad range of potential investors, rather than targeting specific individuals or entities with a direct, personalized approach. General solicitation is often regulated by securities laws to ensure that investors are properly protected and informed.
Why is general solicitation important?
General solicitation is important because it plays a key role in raising capital for businesses, especially startups and private companies, by allowing them to reach a large audience of potential investors. However, it is heavily regulated, particularly under securities laws, to prevent fraud, misrepresentation, and unqualified individuals from making investments. In certain contexts, such as private securities offerings or Regulation D offerings in the U.S., general solicitation may be prohibited or limited to protect investors from risky or speculative investment opportunities that may not be properly vetted.
Understanding general solicitation through an example
Imagine a company that wants to raise capital for a new product development project. The company decides to use general solicitation to promote its investment opportunity to a broad audience. They may issue a press release, advertise on social media, or run an online ad campaign to attract potential investors. The goal is to generate interest from a wide pool of investors, including those who may not have previously been aware of the opportunity.
In another example, a real estate developer might post an advertisement on a website or in a financial magazine offering shares in a new property development project. This is a form of general solicitation because the investment opportunity is being made available to the public at large rather than to a select group of pre-vetted investors.
An example of general solicitation clause
Here’s how a general solicitation clause might appear in a contract or offering document:
“The Company shall not engage in general solicitation or advertising in connection with the offering of securities unless permitted under applicable securities laws and regulations. All potential investors must be vetted and qualified prior to making any investment.”
Conclusion
General solicitation allows businesses to raise capital from a broad audience by promoting investment opportunities publicly. While it provides access to a wider pool of potential investors, it is subject to regulatory controls to ensure that the solicitation is conducted in a manner that protects investors and reduces the risk of fraud or abuse. Businesses seeking to engage in general solicitation must ensure they comply with relevant securities laws and regulations to avoid legal issues and ensure the integrity of their fundraising efforts.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.